Personal Finance

Saylor URL: http://www.saylor.org/books Saylor.org

3. Now prepare a balance sheet, again based on Alice’s form. List all your assets, liabilities and

debts, and your equity from all sources. What does the balance sheet show about your financial

situation at this moment in time? What is your net worth? Do you have positive or negative net

worth at this time, and what does that mean? To increase your liquidity, how would your balance

sheet need to change? What would be the relationship between your cash flow statement and your

budget?

4. Read the CNNMoney.com article “How Much Are You Worth?” (October 3, 2003, by Les Christie,

athttp://money.cnn.com/2003/09/30/pf/millionaire/networth/), and use the data and

calculator to determine your net worth. How does you net worth compare to that of other

Americans in your age and income brackets?

5. The Small Business Administration’s Personal Financial Statement combines features of an

income statement and a balance sheet. You would fill out a similar form if you were applying for a

personal or business loan at bank or mortgage lender. Go

to http://www.sba.gov/sbaforms/sba413.pdf and compare and contrast the SBA form with the

statements you have already created for this chapter’s exercises.

[1] Luca Pacioli, Summa de arithmetica, geometria, proportioni et proportionalita
(Venice: Luca Pacioli, 1494). For more information on Pacioli, see
http://en.wikipedia.org/wiki/Luca_Pacioli (accessed November 23, 2009).

[2] BankruptcyData.com, http://www.bankruptcydata.com/Ch11History.htm (accessed
January 19, 2009).

[3] Sandy Baum and Jennifer Ma, “Education Pays: The Benefits of Higher Education
for Individuals and Society” (Princeton, NJ: The College Board, 2007).

3.2 Comparing and Analyzing Financial

Statements

LEARNING OBJECTIVES

1. Explain the use of common-size statements in financial analysis.


2. Discuss the design of each common-size statement.